Defence versus welfare – the trade-off is being misrepresented

This was first published on our Substack.

Defence versus welfare – the trade-off is being misrepresented

The debate around where to get the money for higher defence spending from has been raging in government for some time. Ministerial resignations this week over the funding of the defence investment plan forced the issue to the top of headlines. As the national conversation on this intensifies, alongside concerns about the UK’s ability to protect itself going forward, it’s important we have a clear picture of how we spent the peace dividend while it was around.

This issue is often distilled into a debate over ‘defence versus welfare spending’, which is an unhelpful oversimplification that people often misunderstand. That misunderstanding isn’t helped when the BBC publishes charts (original version here) saying that “defence spending has fallen as welfare spending has risen”. It didn’t look quite right to me, so we took a closer look.

Don’t tell Gordon – the BBC forgot about Tax Credits

The BBC chart focussed on working-age welfare. But it contained two crucial mistakes. First, it focused only on benefits delivered by the Department for Work and Pensions (DWP) which makes it look like there was a big rise in welfare spending since 2019. The chart is in fact highlighting a more prosaic shift: the managed migration of Tax Credit claimants onto Universal Credit meant that administration of a part of our welfare system switched from HMRC to DWP. Second, the chart excluded payments to children, like Child Disability Living Allowance, which are paid to working-age parents.

Below is our comparison of how non-pensioner welfare (properly measured!) and defence spending looks since 1980. As defence spending has fallen, non-pensioner welfare has grown slightly from around 4.8 per cent of GDP in the mid-80s to 5.1 per cent now. But non-pensioner welfare is now about the same level it was in the mid-1990s, and below its global financial crisis peak, though it has seen some rise from the level immediately before the pandemic.

Don’t tell the boomers – the BBC also forgot about pensioner benefits

Another key question I asked after seeing the BBC chart: why pick on non-pensioner welfare anyway? Especially since we can now see the fall in defence spending was much more dramatic than the rise in non-pensioner welfare. We could instead look at pensioner welfare which has risen from 5.1% of GDP in the mid-80s to 5.9% now. This gives a slightly more compelling version of “defence spending has fallen while welfare has risen”. But in part thanks to rises in the state pension age the fall in defence spending is still larger than the rise in the cost of pensions.

So where did that defence money go? In truth, the peace dividend has funded our entire welfare state in the broadest sense. In recent decades, since 1980, it has been spent more on health than social security (labelled welfare). Health spending since 1980 has risen by 4.5% of GDP, compared to 2.6% of GDP for (all ages) welfare.

This chart also illustrates why the trade-offs feel quite so hard right now. As well as benefiting from the ability to spend less on defence since the 80s we also saw a big fall in debt interest costs thanks to lower costs for government borrowing. But since the pandemic all of that gain has entirely reversed and we now spend more on debt interest than we did in 1980.

Yes the peace dividend has funded more welfare – but it’s the NHS, not benefits

Going back to the original BBC article, while the chart is clearly wrong, you can still say that defence spending has fallen while welfare has risen – as long as you’re clear what you mean by welfare. Many people regard health and education as part of the welfare state, and the services they provide are classified as ‘benefits-in-kind’ by the ONS. But let’s face it, that’s not what politicians mean when they call for welfare to be cut to fund defence. Why was it quite so hard for the Ministry of Defence, Treasury and No10 to agree? No doubt this could have been handled better. But if the public debate was about, for example, how to cut the health budget or pensions to pay for higher defence, perhaps it would be clearer what the real political trade-offs are, and why our politics is not facing up to them.